Abstract
Purpose This study aims to investigate the impact of corporate characteristics on leverage in the Gulf Cooperation Council (GCC) non-financial listed firms. Design/methodology/approach A sample comprising a balanced panel for eight years from 2009–2016 for four Gulf countries is used. In total, 85 non-financial listed companies have been selected using a non-probability sampling technique. Corporate characteristics are represented by return on assets (ROA), return on equity, return on capital employed, market value-added, Tobin-Q, liquidity and firm size. The study used fixed and random effect models to estimate the results. Findings The findings of the study revealed that both ROA and FSIZE have a significant negative effect on leverage. However, market value-added, return on capital employed and Tobin-Q exhibited a statistically significant positive effect on leverage. Further, the results indicated that Qatar is better than kingdom of Saudi Arabia (KSA), Oman and the UAE. In addition, evidence noted that KSA is better than both UAE and Oman in terms of the overall impact of corporate characteristics on the leverage. However, this effect is not statistically significant. Practical implications This study provides an open insight for managers, bankers, financial analysts in the GCC countries and some other developing economies by highlighting the relationship between corporate characteristics and leverage in an emerging market. Originality/value The current study provides an important insight into corporate characteristics and leverage. By so doing, it provides an attempt to identify the factors influencing corporate financing behavior taking into consideration different issues such as different proxies of firms’ profitability, market capitalization, market value added and liquidity, which provides original evidence from Gulf countries emerging markets. These countries are characterized by low tax rates and high liquidity. High liquidity may reduce the cost of borrowing and debt financing may not be a huge burden on firms’ profits. This makes the investigation of leverage and corporate characteristics, particularly, firms’ profitability and liquidity, very important. Therefore, the study tries to bridge an existing gap in the body of literature of capital structure and debt financing in Gulf countries emerging markets.
Highlights
Capital structure indicates to the mix of the various methods of funding sources that a firm maintains (Niu, 2008). Gomez et al (2014) states that the way a firm is financed is very relevant for investors, directors and all other stakeholders
The results indicated that Qatar is better than kingdom of Saudi Arabia (KSA), Oman and the UAE
Evidence noted that KSA is better than both UAE and Oman in terms of the overall impact of corporate characteristics on the leverage
Summary
Capital structure indicates to the mix of the various methods of funding sources that a firm maintains (Niu, 2008). Gomez et al (2014) states that the way a firm is financed is very relevant for investors, directors and all other stakeholders. Indicated that prior studies have made numerous attempts to investigate the corporate characteristics that may have an impact on the capital structure of firms operating within a specific country. While the majority of prior evidence on the relationship between corporate characteristics and leverage comes from capital structure determinants in both developed and developing countries, empirical research in this area did not concentrate on the GCC countries (El-Khatib, 2017; Sbeiti, 2010; Twairesh, 2014). The present study bridges an existing gap in the debt financing and capital structure It provides a unique and comprehensive examination of the impact of corporate characteristics on leverage in emerging markets especially GCC countries.
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